What we do
Our work in this practice group is structured around the records, deadlines, and decisions involved:
- Independent verification of physical stock and inventory records.
- Identification of shortages, excesses, obsolete stock, and other discrepancies.
- Reconciliation of physical inventory with books and stock records.
- Review of inventory valuation and relevant accounting records.
- Better visibility into inventory controls and stock management practices.
- Useful reporting support for lenders and financial institutions.
- Identification of potential weaknesses in inventory handling and documentation.
How the engagement works
Stock audit requirements depend on the purpose and nature of the engagement. For financial reporting, inventory accounting and valuation are subject to the applicable accounting framework and standards. Where stock audits are conducted for banks or financial institutions, the scope may additionally be governed by the lender’s sanction terms, stock statements, drawing power requirements, internal policies, and engagement instructions. The specific procedures and reporting requirements depend on the terms of the audit and applicable professional standards.
Scenario 1: A manufacturing or trading business maintains significant inventory and requires independent physical verification of its stock.
Scenario 2: A bank or financial institution requires verification of stock and inventory offered as security against working capital facilities.
Scenario 3: Management suspects discrepancies between physical inventory and stock records and wants an independent stock verification.
Scenario 4: A business needs to reconcile physical stock with its accounting records before finalizing financial statements.
Scenario 5: A lender requires periodic stock verification to assess the adequacy of inventory supporting the borrower’s working capital facility.
Stock Records Review
We review stock registers, inventory statements, purchase and sales records, goods movement records, and other relevant documentation before conducting physical verification.
Physical Stock Verification
We conduct appropriate physical verification procedures to assess the quantity and condition of inventory available at the relevant locations.
Book-to-Physical Reconciliation
We compare physical stock with books, stock statements, inventory records, and other available data to identify shortages, excesses, or unexplained differences.
General questions
01What is a stock audit?
A stock audit is an independent examination of inventory records and physical stock to verify quantities, identify discrepancies, review valuation, and assess relevant inventory controls and records.
02Why is a stock audit required by banks?
Banks may require stock audits to independently verify inventory offered as security, assess the borrower’s reported stock position, identify discrepancies, and support monitoring of working capital facilities.
03What is checked during a stock audit?
Depending on the scope, a stock audit may cover physical inventory, stock registers, purchase and sales records, stock movement, valuation, storage conditions, shortages, excesses, obsolete stock, and reconciliation with accounting records.
04What documents are required for a stock audit?
Documents may include stock statements, stock registers, inventory ledgers, purchase and sales records, goods receipt and dispatch records, invoices, financial statements, bank statements, and other inventory-related records relevant to the engagement.
05What happens if physical stock does not match the books?
The discrepancy is generally analyzed and documented. Depending on the nature and cause of the difference, further reconciliation, explanation, accounting adjustment, or management action may be required.
06Can you conduct stock audits at multiple locations?
Yes. Where required by the engagement, stock verification can be planned across multiple warehouses, branches, factories, stores, or other inventory locations, subject to the agreed scope and reporting requirements.
07Do you provide stock audit reports to banks?
Yes. Where the engagement is undertaken for a lender or financial institution, we can prepare the applicable stock audit report in accordance with the agreed engagement scope and reporting requirements.
